Oil industry lashes out at drilling ban

NEW YORK (CNNMoney.com) -- The government ban on deep water oil drilling could stifle economic activity and lead to job losses and higher energy prices, an industry group said Friday.

"An extended moratorium on safely producing our oil and natural gas resources from the Gulf of Mexico would create a moratorium on economic growth and job creation," said Jack Gerard, president of the American Petroleum Institute, the main U.S. trade association for the oil and natural gas industry.

The government instituted a freeze on offshore drilling activities in April after the Deepwater Horizon rig exploded and sank in the Gulf of Mexico. The disaster uncapped a well nearly a mile below the surface and caused a massive oil spill, which has already devastated parts of the Louisiana coastline.

BP (BP), the company that leased the ruptured well, has come under withering criticism from environmental groups and the public for failing to stanch the flow of oil. The government has also been under fire for what some see as a history of deferential treatment to oil companies.

Gerard said he understands the frustration many feel toward the industry, but he said lawmakers should reconsider any decisions that would limit access to domestic sources of oil.

"This issue is much larger than the oil industry since access to affordable energy impacts every sector of our economy, every state in our nation and every American family," he said.

Obama, who visited Louisiana on Friday to view the damage caused by the spill, extended the ban from 30 days to six months on Thursday, pending a review by an independent commission.

The ban on new permits extends to any operation over 500 feet deep. That's a more stringent definition of the term "deepwater" than what is used by the industry, according to analysts at research firm Platts. The industry generally defines deepwater as anything over 1,000 feet deep.

The government also said wells currently being drilled in deep Gulf waters will be required to halt at the first safe stopping point, and then take steps to secure the well.

In addition, the administration suspended planned exploration of two drill sites off the Alaskan coast. It also canceled lease sales off the coast of Virginia and in the Western Gulf because of environmental concerns.

The API's Gerard objected to these measures, saying the additional limits on drilling "have the potential to significantly erode our energy and economic security."

The API said "extended development delays" could cut oil production by as much as 400,000 barrels per day. While oil prices have trended lower in recent weeks despite the ban, the group argued that the law of supply and demand means prices could go up if development is put off for too long.

The ban could also mean layoffs in the energy industry, particularly in the Gulf Coast region, according to API. The group said 150,000 jobs are at risk if deep water production is significantly reduced over a period of five years.

"Deepwater is where the new action is in the Gulf," said API spokesman Bill Bush. "If that's shut down, there could be serious jobs impacts."

Environmentalists praised the moves, but said the government needs to do more to regulate the oil industry.

"President Obama is right to impose a moratorium on new offshore drilling," said Frances Beinecke, president of the Natural Resources Defense Council. "But the president needs to go further."

Beinecke said all offshore development, including deep and shallow water drilling, should be halted pending a six month safety review. In addition, she said drilling in Arctic waters should be off limits until the environmental impacts can be fully assessed.

Obama made the announcement after receiving an initial safety review of offshore drilling from the Interior Department, the branch of government that manages the nation's natural resources.

The review offered preliminary recommendations on ways the industry could increase safety and prevent the types of mechanical malfunctions that led to the fire and explosion on the BP drill rig, called the Deepwater Horizon. It also proposed new inspection procedures and reporting requirements for companies engaging in deep water drilling.

"Prudence dictates that we pause and examine our drilling systems thoroughly so that we can ensure that this type of disaster does not happen again," said Interior Secretary Ken Salazar.

BP is reviewing how the recommendations and moratorium could impact its operations, said company spokesman John Pack. But the company is awaiting the outcome of the six month independent investigation, he added.

"We welcome the review of safety and environmental impacts and look forward to working with the federal government," he said.